topic I received a Fair Fund disbersement and interest. The interest will be reported on a 1099 and subject to income tax. Will the disbursement be taxable? in Retirement tax questions

I received a Fair Fund disbersement and interest. The interest will be reported on a 1099 and subject to income tax. Will the disbursement be taxable?

user816729 — Thu, 30 Dec 2021 00:35:04 GMT

Just in case, all the purchases of the security involved were made three and four years before the Fair Fund proceedings settled.

Re: I received a Fair Fund disbersement and interest. The interest will be reported on a 1099 and...

DaveF1006 — Thu, 30 Dec 2021 17:34:00 GMT

Yes this can be construed as a lawsuit settlement and is a taxable event. According to IRS Revenue Code (IRC) Section 61, "all income is taxable from whatever source derived, unless exempted by another section of the code". Here is an IRS link that covers this subject more in detail.

To report in Turbo Tax Online if you do not receive a 1099-MISC for the settlement disbursement.

Go to federal
Wages and Income
Less Common Income
Miscellaneous income
Other reported Income

If you receive a 1099-MISC.

Go to federal>wages and income>other common income>income from 1099-MISC
Enter the 1099-MISC
Next screen will ask you for a description of the income
Next screen asks if any of this uncommon income applies. Here you can say this was from a lawsuit settlement..
Next question asks if this income is for back wages. You will say no.
Finish the rest of the interview.

Keep in mind, you may receive a 1099-INT for the interest and a separate 1099-MISC for the settlement. These are reported separately.

Re: I received a Fair Fund disbersement and interest. The interest will be reported on a 1099 and...

user816729 — Fri, 31 Dec 2021 03:54:47 GMT

Thank you very much. I was aware of some of that and the link certainly helped. I had been having a problem with the idea of taxing an attempt to restore some of a purchase price, but the restoration is money coming in.

Re: I received a Fair Fund disbersement and interest. The interest will be reported on a 1099 and...

DaveF1006 — Mon, 03 Jan 2022 21:06:26 GMT

It depends. If this was a worthless security previously, it should have been either reported as a worthless security or a capital loss in the prior years. Even if the loss wasn't reported previously, it should have been so this is still considered income.